A Deeper Look at the Economics of Advertiser Support for Television: The Implications of Consumption-Differentiated Viewers and Ad Addressability

Abstract

Commercial addressing technologies are currently being trialed that will make it possible to simultaneously deliver different ads to different viewers. Because the members of the audience for a given program often consume different products, addressable ads promise to substantially increase the revenue generated by television ad time. This article presents models of competitive television markets with addressable and nonaddressable ads and shows that addressability significantly alters strategies for profit maximization and, most likely, equilibrium mixes of programs. This article also shows that allowing for viewers who are differentiated in their preferences for products can lead to dramatic departures from the equilibria and audience maximization strategies described in the traditional program choice literature. Ironically, the predictions of the traditional models are likely to be more accurate for television markets with addressable ads than for the markets with nonaddressable ads they were supposed to describe.